Are we past the housing crisis?

One journalist thinks that we could be in for another housing crisis. Here’s why.

The housing crisis of 2008 doesn’t seem all that long ago. As the real estate market softened and eroded, many homeowners found that their biggest household asset had sharply lost value. Worse still, these homeowners were underwater, owing more on their home than it was worth. A frightening wave of foreclosures ensued, individual buying power was sharply reduced, and the effects of the crisis rippled through the economy.

Could something like that happen again? Though everyone would hope that we have learned from the lessons of the past and have fixed the kinds of things that allowed the housing meltdown to occur, some are more cynical. These include award-winning journalist Aaron Glantz, who explores this possibility and analyzes the aftermath of the 2008 crisis, in his new book called Homewreckers.

A theory about what happened following 2008

Glantz’s book takes considerable time to analyze just what happened in the years that followed in 2008. In his view, while the public remains uneasy about entering the real estate market — ownership rates are at an all-time low — knowing the past is important for them to lose their fear of ownership.

The subtitle of his book doesn’t mince words. It reads “How a gang of Wall Street kingpins, hedge fund magnates, crooked banks and venture capitalists suckered millions out of their homes and demolished the American Dream.”

So, what did Glantz find? In Glantz’s words, just after the crisis, “a small group of businessmen pounced to seize thousands of homes and made billions of dollars. They’re the homewreckers.” The subtitle of his book doesn’t mince words either. It reads “How a gang of Wall Street kingpins, hedge fund magnates, crooked banks and venture capitalists suckered millions out of their homes and demolished the American Dream.”

How this looked on a day-to-day basis

So what do the kinds of actions that Glantz talks about look like on a day-to-day basis? In an interview following the book’s release, Glantz talked about well-funded corporate landlords that buy up entire neighborhoods through shell companies, with one home, in particular, being sold for “just half the balance its previous owner was seeking in mediation — $152,000.”

In this case, as Glantz tells it in the interview, the home was ultimately rented for about $2,500 so that the new corporate owner could pay off the mortgage in about five years. If the previous owner had been able to get a traditional 30 year-mortgage for the property, that family would pay approximately $600 a month, not counting taxes and insurance. They would also have avoided having to enter an escalating rental market.

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In a different interview, Glantz gives an alternate view of what a family who had kept a house in their family for more than 30 years and were lured into taking out a reverse mortgage. While the mortgage provided what was promised — at first — this didn’t last. Eventually, the family was responsible for a series of escalating fees that they didn’t understand they owed as they signed the contract. Ultimately, they had to go to court to fight what they believed was widespread fraud.

How the housing crisis may be returning

Glanz believes that as bad as this crisis was, there are some signs that the elements that caused it may be returning. One example of this is mortgage products, including reverse mortgages, that offer terms that aren’t necessarily favorable to borrowers and which borrowers don’t understand. There is also a lack of protection against the kinds of shell companies that bought up vast areas of housing following 2008. Overall, consumers and homeowners would do well to watch these trends and to research any kind of financial transaction they’re asked to take part in.